patrick.net

Of course it's an illusion. If you buy a home in this market with the current potential boulders hanging over the market (shadow supply, artificially suppressed rates at the cost of expanding the money supply, the weakening of world markets, etc), you have to either be very loaded and don't mind any future potential losses, or somewhat uninformed about the risk associated with purchasing a home at market cost in this current ZIRP environment.

Did anyone actually read the original article.... And OC Housing News rebuttal....The original article is far too simplistic. This type of weak bear analysis of the housing market affordability is just as bad as NAR reports on affordability.

No taking into account payment of principal being MUCH higher with the ultra low rates. No factoring in local area rents vs. owning.

2 major parts of the equation of affordability not discussed at all in the article.

Even OcHousing news calls the article out for being "erroneous" in a large section of the original paper:

"Their conclusions are erroneous. They have assigned an unrealistically high cost to the equity component of home ownership. Their basic argument is that the increased cost of equity when applied to the increased equity requirement drives up the cost of ownership to match the bubble-era. This is wrong."

"The paper argues that equity has gotten significantly more expensive as interest rates have dropped, but this is not accurate. Opportunity costs on equity have fallen along with interest rates. Do any of you know where you can find safe investments with higher yields than 2006? I rather doubt it.

Further, this paper uses this falty reasoning and analysis to make its main point that sales are weak despite low interest rates because consumers have a high cost of equity capital. This conclusion is also wrong."

******
To quote OC HOUSING NEWS:

So is current housing affordability an illusion?
I don’t think so. Any buyer (who can find a property) can lock in a low fixed-rate mortgage with a cost of ownership less than a comparable rental. That is real, tangible affordability. Sure it would be nice to pay less in total, but that isn’t the world we live in, nor is it likely to be in the foreseeable future.

Happiness comes from within, not on a balance sheet.

I'm happy to have a roof over my head I can call my own.
And contrary to what the collective Patneters say, yes it is mine.
Affordability aside, my mortgage has many benefits, no late payment fees, can't raise my rate for any reason. Property value is falling and so goes my Tax burden. In fact the only pain the ass I have right now, is dealing with Florida's out of control single payer monopoly that is Citizens, that are at liberty raise rates as they see fit with impunity, anytime they damn well please. And to make matters worse they make Floridians insure the value of their properties 3X the value of their house on average.

I could pay off my loan early, but then I imagine those same people that would convince me I don't own my house the bank does, would tell me that would be stupid of me, because the interest rate is so low. And you never pay off a mortgage when it is more than the home is worth.

Housing is currently considered affordable??? When did that happen?

You're not under water until the situation is an impediment for your current plans.

In my case the value going down in the short term benefits me tremendously. As by Florida law as the appraised value goes down they have to adjust your tax liability accordingly, but it only works in reverse if I were to lake out a loan against the house and had it reappraised.

So in twenty years, (if) the value goes to say 300-500K I'll still be paying less than 2K a year,(provided I never did any financing where the house was appraised) instead of the 5K or even 6K some people were paying during the bubble.

I'm not under water for my situation as I am living in the house cheaper than I would pay to rent a comparable house.
Furthermore my situation could afford me to buy a nicer and even cheaper house in a nicer location for less money. If/when I do so, this house I'm in now would give me a positive cash flow. I'm paying $1200 a month on the house. If I converted it into a 1/1-3/2 I could rent the two units out for $2400. $1600 for the main part of the house and $800 for the 1/1.

Hardly an upside down situation.

Even if the unthinkable happened and I lost my job, and could not sell the house. The track record for the last 5 years has been, I will find a new job and repair my credit and buy another house before the bank foreclosed on the house.

It's really how you want to look at it. I chose not to be an economic victim. I made up my mind that the assholes in Washington and Wall streets disastrous polices where not going to rob me of a quality of life my family deserves and our happiness.

Good luck wallowing in your misery.

Why with your can't do attitude and the obstacles presented, there's nothing you can do.

Your fairly nice people. Don't play with the wrong things. lol. The saftey zone is housing of course. However there is a way to profit from other peoples well financial incompetence. Which is by the way more people than I care to count. Buying well in a retail market your never going to win. The key is to avoid the debt and make out well. Debt=hole=you working for someone else. This system is desgined from the top to suck the labor out of you. Anytime you owe cable, power, house, food etc guess who? They want you at work "producing" for them. The thing is to reject that system entirely and think. See now your free to exercise what you have. Which is way, way more than you give yourself any ability for. You can get it done just recognize what they are up to and get yourself free of it.

This is simply a system designed to put you into debt. It wants you there. Working on their assets. Building a bigger brighter asset structure for them. Why be a nitwit?

Fred Flintstone says

Buy today, underwater tomorrow.

Nah,Buy today, underwater today.

If you think housing is fairly or undervalued, you should also like long term government debt (as an investment). It is approximately equivalent.

This is because mortgages are now handed out based on whether you can make the monthly payment. 30 years ago, mortgages were based on both your monthly payment and a cap based on a multiple of your salary. Because the latter restriction has gone out the window, you are really buying a (complex) long term bond instrument, not the dull boring investment housing used to be.

So if you like the looks of long term government debt, load up on as much housing as you can get your grubby little paws on. If you don't like the looks of long term debt avoid buying right now.

A simple test whether you should buy a home or not is to ask yourself this - if you needed to rent the place can the rent cover PITI+HOA+fees+maintenance? If your answer is a resounding YES then it's a good time to buy it!

BoomAndBustCycle says

To quote OC HOUSING NEWS:

skip OC news and go to the source..

http://www.dqnews.com/

http://www.dqnews.com/Articles/2012/News/California/Southern-CA/RRSCA120613.aspx

inflation came in at 3.2% last year, may well be similar this year..

Orange county clocked in at 2.4% so the increases in prices isnt all the much BIG news. Over the long run, prices are about the same as inflation.

oliverks1 says

This is because mortgages are now handed out based on whether you can make the monthly payment. 30 years ago, mortgages were based on both your monthly payment and a cap based on a multiple of your salary. Because the latter restriction has gone out the window, you are really buying a (complex) long term bond instrument, not the dull boring investment housing used to be.

Thats how we got into the bubble in the first place.. yes that value of the long term bond TODAY does matter, else the lender will take a loss if they are not careful. We are headed back to that same 30 year old method of multiples of your income, which will include higher taxes, and certainly larger chunk going to individual savings. As it should have been.

We are surrounded by illusion, the economy, government, and homes. Its harder to predict what is actually real.

inflection point says

We are surrounded by illusion, the economy, government, and homes. Its harder to predict what is actually real.

Romney put it very clearly... Housing markets need to correct by itself and letting foreclosures happen as they should.

But somehow that is now allowed to be broadcasted by the media.

Probably half the people driving cars on the road too. Debt based illusion.

Next time you see someone driving a bmw make sure to remind them that its really the bank's bmw.

toothfairy says

Probably half the people driving cars on the road too. Debt based illusion.

Next time you see someone driving a bmw make sure to remind them that its really the bank's bmw.

And the next time you see a college grad, tell them the government owns their degree. They are just leasing it...

Lol. You are really promoting debt as a valid lifestyle?

Wow, the depths realtors will sink to....

bgamall4 says

Read my article about what his dad did to spur a mini housing bubble. It was stopped because we had a sovereign government to stop it. Don't think for a minute that Romney hasn't learned from his dad:

LOL! you seem short on memory, what transpired over the past 10-15 years! it certainly wasnt Romney Sr that convinced home buyers that homes would appreciate in price by 20-50% annually for the long term starting in late 90s.

dodgerfanjohn says

Lol. You are really promoting debt as a valid lifestyle?

lol is right. Debt is a tool. A means to an end. It is neither good nor bad. Used correctly, it is invaluable. When used incorrectly--such as getting in over ones head--it can be very damaging.

You really need to open your mind a little. The world is not so black and white.

I've been making offers at 30-50% below asking price.
Many of those houses have been sold for more than asking price.
Well! I'm not underwater.

In an auction I bid $100, the next bid should be $90, the next should be $80,etc. WTF are people thinking. OH! Let's make the seller rich.

I don't know. After I lost my full time, long term job, I have been on short projects across the country. It has been quite an education. Nowadays, the pay is more or less the same-at least for a contract gig(in IT). They really don't pay that much extra to make a difference for the high cost of living in CA. But house prices can be a third or so less, in say the midwest or Georgia.

Now that I am in the final stages of signing on to a full time job in CA, the house price sticker shock is back. I look at a shack for 500k and really can't justify buying.

If one looks at house prices in CA during the dotcom boom, they were much, much lesser. You could get a home for 300/400k -nice homes, with a big garden, not the McMansion crap with tiny gardens- in pretty decent areas. These shot up to 800-900k , even a million bucks or more-after the jobs market cratered. Just the voodoo economics pushed them up, not fundamentals.

So I think current homes still make no sense. I still love CA-after you experience a winter in the north midwest/great lakes area- I would rather prefer the sun belt . I am not getting younger and shovelling snow or even being trapped in your house, because snow blocks the door is not appealing. But housing is simply overvalued. Pay isn't that much different(well unless you are in TX-most projects I applied there, did offer significantly less in per hour billing). But house prices are still too high. I am not even considering the high end areas, just middle class areas without significant crime and decent schools.